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Is Boohoo’s share price in bargain territory after falling 15%?

Boohoo’s share price has continued to decline in August, reversing a brief rally at the end of July. That was triggered by Mike Ashley’s Frasers Group upping its stake in Boohoo. Should investors follow suit, especially with the stock near all-time low levels?

  • Boohoo’s share price has dropped over 15% since 6 August.
  • Mike Ashley’s Frasers Group increased stake in the fast fashion retailer at the end of July.
  • Interim results out 3 October should provide update on Boohoo’s turnaround strategy.

Boohoo’s [BOO.L] share price is coming undone this month, having fallen 15% since 6 August, closing Monday 20 August at 33.67p. This reversed a brief rally the stock enjoyed at the end of July, when it gained over 10% after Mike Ashley’s Frasers Group increased its stake in the fast fashion company.

Over the one-year period Boohoo’s share price has tanked 36%, with the losses coming in at over 88% for the two-year period. Weighing on sentiment has been a drop-off in business since the heyday of the pandemic, when online retailers like Boohoo were in fashion among investors.

Yet, as the stock continues to slide, Fraser Group has been buying it on the cheap. At the end of July, the group upped its stake in Boohoo from 6.8% to 7.8% — the second time that month. A Frasers spokesperson said that Boohoo was an “attractive proposition to us with its laser focus on young female consumers”.

UK market conditions weigh on Boohoo’s share price

Causing a tear in Boohoo shares this year have been doomy market conditions in the UK. A record 8.2% growth in private sector pay in the three months to June underlines the inflationary concerns that remain in the UK market. The Bank of England raising interest rates 0.25% to 5.25% earlier in August is also likely to have weighed on Boohoo shares, as it gets caught in the wider FTSE 4.22% decline this month. 

Another drag on Boohoo’s share price is likely a sharp decline in sales. For the 12 months ending February, revenue dropped 11% year-on-year to £1.8bn, while adjusted earnings before tax fell 92% to £6.9m. To get some idea of Boohoo’s woes, in 2020 the company sewed up £92.2m in profits.

This year underlying profit is expected to come in between £69m and £78m. Revenue is expected to be flat, to a decline of 5%.
Against this background, Boohoo has drafted in HSBC [HSBA.L] as a corporate broker along with Zeus Capital and Jefferies [JEF].

What can help Boohoo’s share price?

Boohoo has major challenges ahead of it. Last year the number of active customers dropped 10% to 18 million. The number of orders also fell to 55.5 million from 62.4 million, while order frequency and average basket size metrics were also squeezed.

Cost-cutting is one lever Boohoo has pulled to improve its figures, with the company looking to simplify its organisation and warehouse network, and reduce inventory levels. But trimming costs only goes so far, and doesn’t replace its long-term strategy to turn around business. Acquisitions such as Debenhams could provide some room for growth.

A key date for shareholders is 3 October, when Boohoo publishes its interim results. How it is getting on streamlining business, mitigating against further losses and growing customer numbers will be closely watched.

In the update it will be worth keeping an eye on what happens with revenue in the second half of the year, with Boohoo predicting this should see some growth as investments across price, product and proposition pay off as part of the company’s growth strategy. 

Is Boohoo’s share price a bargain or too risky?

Boohoo’s share price is now hovering above all-time lows. Should Frasers Group — or another major investor — increase their stake in Boohoo then the stock could see some price movement once again. However, there is no guarantee this will happen.

It’s worth pointing out that Boohoo’s share price is volatile and carries a 1.83 beta, according to data from Yahoo Finance. At the end of March, the stock hit an intraday high of 60.36p before entering a prolonged downturn that saw the stock hit 32p levels in mid-June. The stock then bounced between the 33p and 35p levels until the interest from Frasers Group spiked trading volumes. Anyone investing at the current price should expect some bumps along the way.

Among the analysts, Boohoo’s share price has a 42p price target. Hitting this would see a 24.7% upside on Monday’s close.

 

 

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